Hmm it seems that nowadays I have ALOT of thoughts in my mind. I guess partly is cos of the transition from no-work to working soon. So there are some anxieties, some thoughts. Then also thinking about investments, so more thoughts. It would mean alot of 'deposits' of thoughts here.
On the thought of savings again. One point that came up is the fact that most of us try to save some money. Its not that we intend or even purposely spend until $0 every month. We do put aside some money, whatever it is in a saving account.
There are just 2 issues.
First, whether the amount saved at the end of 1 year is kept intact.
Second, whether the amount saved is enough.
To illustrate. Say a person puts aside $400 a month into savings. After 12 months, its a sum of $4800.
For the first point of keeping the amount intact, is this. Is it being drawn out at the end of the year to pay for something? Assuming all drawn out to finance an expensive holiday abroad? To pay for insurance premiums? To buy a few expensive designer items?
IF that is the case. Then after 1 year of saving, the NETT effect is $0. I emphasize looking at the NETT Figure always in planning of savings, cos that is really the picture that matters.
Some might argue that cos of the insurance, all or a huge chunk is taken out of their savings. Hence save very little. I think unless one is earning MINIMUM income, about <$1800 gross a month, that is AN EXCUSE. It can be done but of course it meant spending lesser per month to 'save extra' on top of the insurance premiums.
So say insurance is $3000 a year. Save $400 a month previously. To avoid the nett picture of $4800-$3000 =$1200, a mere sum, one really has to raise the amount per month. So working backwards. $3000 / 12 = $250 extra. So it meant IF can now try to save $400+$250=$650 a month, it would mean at the end of the year, the Nett picture is $650x12 - $3000 = $4800. Hence you have managed to keep your savings intact.
The same principle can be applied to financing for a year-end holiday. You estimate how much it would cost you to have a good and comfortable holiday eg $5000. Work backwards. $5000 / 12 = $417 extra. So a target to try to hit is $417+$400 = $817. After a year of saving up. You can go for your well-earned holiday with a budget of $5000, and yet still have $4800 in your bank account intact. Also if you didnt fully spend that $5000, the extra is extra savings.
Some might say that what IF the sum I calculated is TOO high and it is very stressful and impossible to achieve it. As a flexible, thinking person, firstly the target is there to help you have a sense of where you are going with the money. If there are months, a bit tight, cannot hit, so long as most months manage to hit it. The nett effect at the end of the year, is still a larger amount intact in the bank compared to $0 if nothing is done. Secondly, IF after trying to spend less, still not able to hit the target amount, then it is a Strong indication that either you have TOO many stuff to finance at the year end or you are not making much inroad to rein in spending. Then I would advise a re-think on your part to better manage your money. Cos at the end of the day, its your money and your life. I am not one to dictate how much you should spend or save. So you make your decisions and live with it.
The second point about whether the amount is enough?
This is related to the first part about keeping the savings intact. If it can be kept intact. The next question is to ask IF you are happy with the intact amount per year. If yes, continue, cos at least every year, you can add on more intact money to your pot of gold. It WILL grow provided every year, it is kept intact.
But if it is a bit low for your liking. Tweak it by thinking of a slightly higher amount you like eg $6000. That would translate to $6000 / 12 = $500 a month. If there are insurance $3000, that would mean $250 extra. If there is a holiday, maybe lower $4000, that would mean $334 extra. So the total target is $500+$250+$334 = $1084, which seems to be a rather large figure. Now can try it out but montior monthly. If after a while, really is too unrealistic. Then look through the components. This $1084 is arrrived from 3 parts, the $500 intact savings, the $250 insurance premiums, the $334 for holiday. So maybe have to adjust some. Lower the holiday to $2000, $167 per month. The newly adjusted is $$917, lower and maybe more doable. Try out again for a few months, see if can hit, if not readjust the components again.
Some might ask WHY should I limit myself and live on a tight budget? That is so not enjoying life. I rather live with small savings than do this.
As mentioned, this is a method to 'force' out extra savings that can be used to finance those end-of-year huge expense and by doing so, allow your savings to be kept intact. Only the nett picture matters. So unless one is happy with the lowered nett amount cos didnt account for these large end-of-year expenses, otherwise its either earn much more or save much more.
This is an actual method that I use to manage my savings. I would say this is the HIGHEST level of analysis and planning I make to ensure I am saving
The basic being first monitor daily expenses to get monthly expenditure totals, next monitor and ensure monthly surplus mostly, also analyze expenditure patterns and adjust.
Then more advance is to get an annual figure saved eg 1st Jan to 31st Dec. The amount that is kept intact after ALL the annual expenses are accounted for.
Then the highest level is to set targets by looking at the overall picture, work backwards to arrive at a target amount per month.
Next is back to basics, checking nett figure per month to see if hitting the target, monitoring expenditure pattern (not every expenditure amount), total amount per expense item. Then annual figure, less year-end expense. After all of that check if the Intact savings is hitting target. Then repeat.
Too much trouble? Well its your money, its your life.
I did it this way, it doesnt take that much of my time at all. It allowed me to save up alot in my working days, enough for me to get started investing in shares, enough to build up a separate living expense reserve that is used to finace this period of unemployment and change in job.
It doesnt matter how much one saves every month IF at the end of say a year or 2 or even more, ALL or the bulk of it is used to finance something (non-income generating) Only with INTACT savings building up every year. Over a short few years, you can be surprised at the amount you build up, just by being more dilligent, conscious of where your money is going to, what are you saving up extra for, what are the things you have planned in your monthly, annual budget. Just like that.
Easier said than done. But getting started in small steps first. A journey of a thousand steps begins with one. Even if one does not manage to do everything listed above in a yearly cyle, the simple fact that you are putting more effort to manage your money is way better than what you started with (a simplistic idea of putting leftover of your salary into your bank account and hope it will grow somewhat)
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